Social Security Benefits and Taxes: What Retirees Need to Know in 2025
Retirement should be a time to relax and enjoy the fruits of your labor, but navigating the complexities of Social Security taxes can feel like a full-time job. The good news? In 2025, 41 states won’t tax Social Security benefits, giving retirees a much-needed financial break. However, for those living in the remaining nine states, understanding how these taxes work is crucial to avoid surprises come tax season. At Spyglass Accounting and Financial Services, we’re here to help you make sense of it all and ensure your retirement planning is as smooth as possible.
The Good News: 41 States Won’t Tax Social Security Benefits in 2025
If you’re planning your retirement or already enjoying it, you’ll be happy to know that the majority of states have decided not to tax Social Security benefits. This means your monthly check will arrive intact, giving you more financial flexibility. Here’s the full list of states where Social Security benefits are tax-free in 2025:
- Alabama
- Alaska
- Arizona
- Arkansas
- California
- Delaware
- Florida
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kansas
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Mississippi
- Missouri
- Nebraska
- Nevada
- New Hampshire
- New Jersey
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- South Carolina
- South Dakota
- Tennessee
- Texas
- Virginia
- Washington
- Wisconsin
- Wyoming
- Washington D.C.
If you live in one of these states, you can breathe a sigh of relief—your Social Security benefits are safe from state taxes.
The Not-So-Good News: 9 States Still Tax Social Security Benefits
For retirees in the following states, Social Security benefits may still be subject to state taxes:
- Colorado
- Connecticut
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
However, there’s a silver lining: West Virginia is expected to phase out these taxes by 2026, joining the growing list of tax-free states. To learn more about taxation on SSA in each state visit: Tododisca
How Much Could You Save?
If you live in a state that doesn’t tax Social Security benefits, the savings can be significant. Here’s a quick example to illustrate:
- Let’s say you receive $20,000 annually from Social Security.
- If your state taxes Social Security at a 5% rate, you’d owe $1,000 in state taxes.
- In a tax-free state, you’d keep that $1,000 in your pocket.
For many retirees, this extra money can make a big difference in covering daily expenses or even funding a dream vacation.
Federal Taxes on Social Security Benefits
While state taxes are a key consideration, don’t forget about federal taxes. Depending on your combined income (which includes your adjusted gross income, nontaxable interest, and half of your Social Security benefits), up to 85% of your benefits could be subject to federal taxes. According to USA Today Here’s how it breaks down:
- $25,000 if single, head of household, or qualifying surviving spouse
- $25,000 if married filing separately and lived apart from your spouse for the entire year
- $32,000 if married filing jointly
- $0 if married filing separately but lived with your spouse any time during the tax year
Planning Ahead: Tips to Minimize Taxes
Whether you live in a tax-free state or not, there are steps you can take to minimize the tax impact on your Social Security benefits:
- Manage Your Income: Keep an eye on your combined income to avoid crossing the thresholds that trigger higher taxes.
- Consider Roth Conversions: Converting traditional IRA funds to a Roth IRA can reduce future taxable income.
- Charitable Contributions: Qualified charitable distributions (QCDs) from your IRA can lower your taxable income.
- Tax-Loss Harvesting: Offset gains by selling underperforming investments in your brokerage account.
How Spyglass Accounting and Financial Services Can Help
Navigating Social Security taxes and retirement planning can be overwhelming, but you don’t have to do it alone. At Spyglass Accounting and Financial Services, we specialize in helping individuals and businesses:
- Optimize Tax Strategies: We’ll help you understand how Social Security taxes impact your overall financial picture.
- Retirement Planning: Our experts can guide you in creating a retirement plan that maximizes your benefits and minimizes taxes.
- Tax Preparation: Let us handle the complexities of tax season so you can focus on enjoying your retirement.
Key Takeaways
- 41 States Are Tax-Free: If you live in one of these states, your Social Security benefits won’t be subject to state taxes in 2025.
- Federal Taxes Still Apply: Up to 85% of your benefits could be taxed at the federal level, depending on your combined income.
- Plan Ahead: With the right strategies, you can minimize the tax impact on your Social Security benefits.
Final Thoughts
Retirement should be a time of financial peace, not stress. By understanding how Social Security taxes work and planning accordingly, you can make the most of your golden years. If you’re unsure where to start or need help navigating these changes, Spyglass Accounting and Financial Services is here to help. Contact us today to schedule a consultation and let our experts guide you toward a secure and worry-free retirement.